Understanding Productivity in Macroeconomics

Till now, you have learnt about GDP and its variants that help you compare and determine the size of an economy. You also learnt that GDP-per-capita is a good way of comparing the living standards of a country's population. While GDP and its variants help you compare 'how big' a country is or 'how much' its production is, they do not help you in answer 'how well' a country is producing.

Such a factor of comparison, which comments on how efficiently a country is producing value or how efficiently a country is utilising its resources is known as productivity. In the upcoming video, you will listen to Chris as he talks about Productivity and how some countries are more productive than others.

So, in the video, you learnt that Productivity refers to the value that a worker can produce in a given time period. It is calculated by dividing the value of the total output by the number of hours spent in producing that output. 
 
So, Productivity = Total Output / Total Number of Hours
 

In the video, you also learnt about the factors that determine the productivity of an economy. These factors include:

1. Physical capital, which is the infrastructure or the material used to produce goods;
2. Human capital, which is the availability of skilled resources;
3. Natural resources, which can be exploited for economic gain; and 
4. Technological resources, which is the availability of the right technology that is needed for production.

A country that utilises all of these factors is generally more productive than others. Typically, the major input resources available for a country are labour and capital. So while one form of the productivity indicators consider how well human labour has been utilised, other forms consider how well has capital been utilised.

Additional Learning

• Read this article to learn more about how the productivity of a country is multifaceted across industries and sectors.
• If you are interested to know about Labour Productivity Index, you can visit this interesting Organisation for Economic Co-operation and Development (OECD) link.